Monumental effort by some to comply with conflict minerals rule: is it helping or hurting?

For some companies, compliance with the SEC’s conflict minerals rule required a truly monumental effort. According to this article in the WSJ, one company identified over 38,000 suppliers– pause on that a moment: thirty-eight thousand suppliers! – of components for its products that might contain conflict minerals (tin, tantalum, tungsten and gold –3TG). The article reports on a recent study of the more than 1,300 Forms SD filed this year to report on conflict minerals compliance. Of those, 495 companies disclosed the number of suppliers they examined, with the average being 743 suppliers. In addition to the “winner” above for most suppliers identified, one company disclosed that it identified 30,000 suppliers, and three others identified between 11.000 and 13,000. On the other end of the scale, 20 companies reported contacting just one supplier (including World Wrestling Entertainment). Of course, these are just the companies that counted up and disclosed the totals. Almost none of the companies that filed conflict minerals reports were able to determine that their products were conflict-free.

Is all of this effort doing any good? This post from July of this year discusses a favorable report issued by The Enough Project — one of the key proponents of the conflict minerals rule — on progress achieved in the Democratic Republic of the Congo (the DRC) and adjoining countries in curtailing the funding of armed groups through the trade in conflict minerals. Happily, according to the report, much of the progress was attributable to “market changes spurred by the 2010 Dodd-Frank law on conflict minerals.”

However, an article published September 10 in The Guardian, “DR Congo’s miners bear brunt of attempts to make minerals conflict-free,” by Mark Anderson, presents quite a different picture. The article reports on an open letter “signed by 70 academics, politicians and civil society professionals [that] warns that efforts to block armed groups from selling minerals ‘risk contributing to, rather than alleviating, the very conflicts [such measures] set out to address.’” According to the letter, while “progress has been made in producing more ethical products for consumers,… stakeholders have not yet proceeded to improve the lives of Congolese people, nor address the negative impact current ‘conflict-free’ initiatives are having.”

The open letter estimates that eight to ten million people in the DRC depend on small-scale artisanal mining for their livelihoods. However, as acknowledged by the US Department of Commerce, discussed in this post, because “these producers of metals are ‘off the grid,’ it is very difficult to trace exactly where these small amounts of materials are smelted.” As a result, the letter contends, Dodd-Frank inadvertently provides an incentive to source elsewhere, disrupting these miners’ livelihoods. The letter charges that Dodd-Frank and other legislative efforts “fundamentally misunderstand the relationship between minerals and conflict in the eastern DRC. First, while the minerals help perpetuate the conflict, they are not its cause…. [O]nly 8% of the DRC’s conflicts are linked to minerals, and …. armed groups are not dependent on mineral revenue for their existence.” In contrast to the conclusions drawn by The Enough Project, the authors of the open letter argue that “the conflict minerals movement has yet to lead to meaningful improvement on the ground, and has had a number of unintended and damaging consequences,” including driving many miners to the ”margins of illegality” through activities such as smuggling, or into insecure subsistence farming and extreme poverty, or, in a particularly perverse consequence, into joining militias to earn cash. (One researcher quoted by The Guardian opined: “I think an increase in smuggling has been the principal effect [of the Dodd-Frank Act], but of course, this is hard to quantify.”) At the same time, armed groups, the letter contends, have simply responded by resorting to other businesses for funding or have “traded mineral exploitation on site for mineral taxation a few steps down the supply chain….”

In addition, the letter argues, mining sites that have been reviewed and “validated” as conflict-free are not assessed frequently enough, given the volatility of the environment, to assuage “concerns over whether conflict-free certifications reflect production realities.” Even the area with the most advanced traceability system “still suffers from the sporadic influence of armed actors, and miners are made to bear the additional costs of ‘conflict-free’ schemes. This raises further concerns over the credibility of the system in place, and its suitability for the scale-up and expansion to other, more remote mine sites currently underway.” Moreover, the requirement for traceability “is economically damaging to local populations since it currently excludes and isolates the overwhelming majority of mining communities from legal access to international markets.”

Notably, the authors of the letter are not proposing that all efforts be abandoned, but rather advocate “a more nuanced and holistic approach that takes into account the realities of the eastern DRC’s mining sector and the complexity of the conflict….” In particular, they make five recommendations:

“Improve consultation with government and communities: Congolese government and civil society were poorly consulted on Section 1502 of the Dodd-Frank Act prior to its passing, and as a result many were unaware of its implications. The few who were consulted were unanimously pro-Dodd-Frank, creating additional conflicts on local levels where endorsement and dissent compete. More Congolese voices must be listened to, and the local context and power structures taken into account….

“Work towards meaningful reform: The audit process should be designed to improve policies and practices rather than to just provide window-dressing. The dominant belief that static oversight and validation processes ensure ‘conflict-free’ mineral trade is misplaced given the volatile security situation in most of the eastern DRC. Both mines and smelters should be regularly inspected and the time period between inspection and certification minimized. Where this is not feasible, additional waivers or similar measures should not be ruled out.

“Create incentives towards better practice: Legal frameworks must be supported by real projects on the ground that can meet their requirements. If this is not possible – which is clearly still the case today, nearly four years after the passing of Dodd-Frank – then transition periods must be extended and the lowering of excessively high standards for ‘conflict-free’ minerals should be considered. Similarly, former conflict actors should be incentivised where appropriate to join new ‘conflict-free’ schemes. This may help avoid the eventual subversion or infiltration of the ‘clean’ system put in place, as has been seen to date.

“Widen the lens: Root causes of conflict such as land, identity, and political contest in the context of a militarized economy, rather than a single focus on minerals, must be considered by advocates seeking to reduce conflict violence. Furthermore, efforts to eradicate conflict minerals should not overlook the fact that artisanal mining is a key livelihood in the eastern DRC that holds as much potential to help steer the region away from conflict as it does to contribute towards it. More supportive measures are needed – such as those found in the earlier 2009 draft of the US Conflict Minerals Act – that can help capture the economic potential of artisanal mining. Finally, other critical challenges such as access to credit, technical knowledge, hazardous working conditions, and environmental degradation should not be ignored by multinational corporations if they seek to improve business practices and increase transparency in their supply chains.”

Of course, this debate is not a new one. The potential impact of conflict minerals legislation was the subject of a heated debate in the NYT and elsewhere in 2011 (see, e.g., these news briefs of 8/8/11, 8/10/11 and 9/30/11), and is likely to continue for as long as conflict violence continues.

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